Millennials, Gen Ys financially ambitious but overconfident: Survey

Younger Australians show a high degree of financial confidence – potentially veering into “overconfidence” – and higher risk tolerance in their investment decision-making and financial management practices compared to older cohorts, results from a new survey have revealed.

The survey, conducted by global wealth management firm Fidelity spanning 1,000 Australians across three generations, found generally high levels of financial confidence among Generations Y (also known as Millennials) and Z – collectively categorised as ‘next gens’.

Around one in three ‘next gens’ also showed a high or very high risk tolerance compared to fewer than one in five Gen Xs (those currently aged between 43 and 59). Not only is this commensurate with a longer investment horizon, Fidelity found, but also likely reflects a degree of investment overconfidence within this cohort.

Three in five of those surveyed expressed their confidence in evaluating investment opportunities, with Gen Zs and Gen Ys reporting notably higher confidence than Gen Xs.

As well, there was a distinct variance in attitudes between generations in making and managing money, with younger people preferring direct investments as well as seeking quick financial gains compared to older Australians.

“Gen Y and Gen Z are more likely to invest in areas such as cryptocurrencies and passive ETFs compared to Gen X who have significantly greater use of super and Australian shares,” the survey found.

Active ETFs have also drawn increasing appeal from younger generations. Nearly half of those surveyed view active ETFs as an attractive investment option, with Gen Y the most likely to find them appealing.

“Ease of monitoring, simplicity of transactions, lower minimum investment, and transparency, are considered the most attractive features,” Fidelity’s report found.

However, a distinct overconfidence, combined with a propensity for direct investments, could see younger Aussies inviting inordinate risk into their investments. Where investors seek information – online, via social media or through ‘finfluencers’ – may also negatively impact their financial decisions and outcomes.

“Younger Australians – particularly Gen Z and Gen Y – are approaching financial management with different expectations and priorities compared to older generations,” said Fidelity head of wholesale sales and report contributor Lauren Jackson.

“They have access to a multitude of information sources and often feel empowered to navigate investment opportunities, but this self-assuredness may mask a lack of deeper financial literacy and experience, particularly in areas like portfolio diversification.

“There is a risk that a ‘get rich quick’ mindset could push younger investors off track from achieving their financial goals, particularly with cryptocurrencies and finfluencers around every corner.

Jackson urged for wealth advisers to guide younger investors, with a “strong focus on financial education, highlighting the importance of disciplined, long-term investing, will be key to ensuring that their confidence doesn’t lead to poor decision-making.”

The report added: “This sense of financial confidence and aspiration to grow wealth, along with higher risk tolerance, will need to be accommodated by financial advisers looking to service emerging next generations. Younger clients may be more inclined to try to ‘get rich quick’ and less disciplined in reining in their spending habits.”

Gen Xs save, ‘next gens’ hustle

As cost-of-living pressures mount for many, younger Australians – contrary to popular opinion – were also found to be far more willing to take on additional work hours to support their spending needs rather than cutting expenses.

These additional income streams might include side hustles, entrepreneurship or new investment opportunities.

In contrast, Aussie Gen Xs opt for a more cautious approach, more likely to set themselves a budget or cut back on non-essential expenses.

“Our research shows that younger Australians are financially ambitious and confident and – perhaps contrary to common opinion – more willing to take on additional work in order to maintain their lifestyle,” Jackson said.

The report also found generational differences in investment practices and habits. Mobile trading apps were found in use by nearly half of Gen Y and Z investors, double the number of Gen Xs, while online brokerage accounts were used by one in four next gens (and particularly Gen Zs).

“As part of the digital native generation, Gen Y are familiar with apps across all aspects of their life and expect the same kind of service when it comes to their investments. But they also have a desire for self-improvement and financial education. It is clear that younger investors are often looking for more control and flexibility in their portfolios, and they recognise that active ETFs have the potential to help them achieve their financial goals,” the report read.

For advisers, despite the increasing preference for direct investing, Fidelity sees ample opportunity to support younger investors – providing a “reliable counterpoint” to less scrupulous sources of investment information.

“Younger generations want advisers to be able to explain complex financial concepts in simple terms, provide educational resources, and accommodate their preferences for more hands-on investing aspirations,” Fidelity wrote in its paper.

“Seeking self-improvement amidst potential overconfidence suggests a key role for advisers to educate next-generation clients and influence them positively to make their best financial decisions.”

“Next-generation clients are less experienced and more impressionable, and are becoming increasingly influenced by multiple information sources on social media and through finfluencers.

“Advisers need to act as a reliable counterpoint to potentially poor-quality financial information or dubious finfluencer advice to help avoid poor financial outcomes.”